“We shouldn’t be playing around with inflation. It’s not for nothing Reagan called it “as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man.” The Fed’s pump priming addiction has got our small businesses running scared, and our allies worried. The German finance minister called the Fed’s proposals “clueless.” When Germany, a country that knows a thing or two about the dangers of inflation, warns us to think again, maybe it’s time for Chairman Bernanke to cease and desist. We don’t want temporary, artificial economic growth bought at the expense of permanently higher inflation which will erode the value of our incomes and our savings. We want a stable dollar combined with real economic reform. It’s the only way we can get our economy back on the right track.”

-Sarah Palin

>

The most popular piece on the WSJ.com is “Sarah Palin Takes Aim at Fed. ” Given the policy wonkiness of the former Alaskan governor (?!?), one can only wonder who her writers are.

The Journal mentions in passing that Karl Rove questioned her “gravitas.” While Rove seemed to be calling her an intellectual lightweight, the article doesn’t really really question the speech itself — or its reflection of Palin’s belief system.

Matt Phillips of the WSJ’s Marketbeat blog is having none of it, pointing out the 3 major premises of her speech are factually incorrect:

“First off, Reagan’s quote, delivered to a Republican fund raising event in October 1978 — according to the Columbia Book of Quotations — came as inflation was hovering around double-digits.We’ve got a very different situation now, the consumer price index for all items minus food and energy rose 0.8% over the year to September, the lowest 12-month increase since March 1961, the Bureau of Labor Statistics said.

Second, Germany did indeed have a nasty battle with hyper inflation about 90 years ago in the Weimar Republic. But what’s worrying Germany right now is not that their good friends in the U.S.A. will soon be selling bundles of greenbacks by weight, rather it’s that a cheaper dollar is a threat to their own all-important export sector. That’s a legitimate concern for them. But do you really take advice on business strategy from your competitor?

And over at Real Time Economics, another WSJ blog, Sudeep Reddy (author of the Palin piece in the WSJ) points out that Palin’s criticism of inflation is wrong — its been quite low this year at an average annual rate of 0.6%.

But why does it take a blog (or two) to call out the bullshit in her speech? Why doesn’t the Journal point out how “this is factually incorrect, this is wrong, and this is nonsense.?”

Therein lies the Future of media, in one delightful microcosm: The MSM tosses out thin gruel, while a blog — their own blog ! — debunks it a as empty headed nonsense.

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

Don’t know why people imagine that she might want to be president. It would mean a huge pay cut and a lot of work; whereas being a celebrity is fun. Same with Newt. He just says stupid, hateful thing to keep the books selling.

The thing is, stagnating wages (and declining home values, coupled with huge accumulated debt burdens) are precisely the problem. When paychecks shrink even as cost of living inputs rise, it’s like a regressive tax increase. If we get a full-blown housing double dip, this impact will be felt even more severely.

That’s why the operative term for this Fed-engineered disaster is “inflationary recession” — the stuff that’s going up in price means margin compression for businesses and income compression for wage-strapped consumers. That result in turn will have the impact of making the next economic downturn worse, and putting a heavy damper on long-run GDP growth.

(Investors think equities are ‘cheap’ now because they are being referenced against superlow bond yields. But persistently weak GDP will eventually rein in corporate growth and force a multiple compression.)

And thus the deflationists still have a case. The big deflationary inputs — wages, home prices, accumulated debt burdens, long run earnings outlooks as restrained by weak GDP growth — are not counterbalanced by a temporary rise in paper asset prices, regardless of what the Fed does. And by some measures the regressive tax aspect of food and energy cost only hastens a deflationary result.

COTTON up 124% YOY
Gold up 27%
SILVER up 56%
Copper up 35%
Wheat up 39%
Soybeans up 39%
Corn up 49%
oats up 45%
Sugar up 48%

~~~

BR: Yes, and Equities up 82% from March to March.

If you think that trading vehicles are a measure of inflation, then you best stick to law.

OK Barry….to call you out here. You are saying your equity holdings are up 82%…OK, so you sell them…you pay your taxes on them…and then you figure out that that your actualy buying power has been reduced by the fall in the dollar. Now you have to go out and BUY all those goods that just ran up in your face…… With dollars that are worth less. i call bullshit on the fact that everyone is dscounting food and energy as inflation factors. In the long run, I am a believer that deflation will rule the day. BUT, for now…inflation is killing us middle income earners. If you don’t believe it, come pay some of my bills. I am sick and tired of the elite, and yes barry….your earnings put you way up there, trying to discount the fact that inflation is killing the average guy who is just trying to pay for his house that has just lost 35% of its value, while the debt remained the same and try not to live off credit cardsa as their earnings have actually decreased over the past 5 years thanks to Ben and his actions on the dollar. All you idiots out there who want to call me a moron you go right ahead…But it is people like me who are trying to make ends meet whcih probably pays your salary.

Alaric Investor wrote “Pluueezz. What cost is going down for anyone here?”

I rent a 2/1 house in Austin for $1500/month. I just found a 3/2 in the same neighborhood for $1295/month. Bigger, better. They were originally asking $1375. Two weeks after we looked at it and told em we’d get back to them, they called us and lowered the rent by 8o bucks. They literally couldn’t find anyone to rent the house to. I’d call that deflation, wouldn’t you? Mind you, this occurred after we passed on buying a house where the seller was asking $285k and we offered $250k, which she accepted. Turns out the house needed a new roof and some foundation work, plus we found that rental house, so we did that.

This is in Central Austin, continually ranked as having one of the best local economies in the nation.

Also, we just rented a 3 bdrm condo in Breckenridge for $100/night during ski season. Rental car from Denver airport: $17/day! Flight: $170 r/t from Austin! They’re literally giving s#$%t away right now–if you have the cash.

Honestly, it seems that a lot of folks have abandoned the notion of free markets here. Inadequate demand equals deflation. Higher demand equals inflation. Monetary policy can probably affect this formula somewhat, but there are certain rules that will eventually apply. It really reeks of provincialism to ascribe movements is commodity prices to actions of the Fed rather than perhaps demand abroad or other macro-economic forces.

It seems like everyone these days–libs and conservatives–has bought into the idea of command and control, where the Fed and the President can just wave their magic wands and force markets (local, regional, national, global) to do their nefarious bidding. Is it because everyone secretly thinks that the Chinese have got it right?

I really don’t think that conservatives are conservative anymore. They all just sounds like Lyndon LaRouche to me these days.

The most moronic part of her tele-prompter read is the suggestion that small businesses are scared of inflation. No they are scared to death of having to lower prices on the ever increasing stock piles. They are scared to death of having to pay back their loans with a decreasing revenue flow from deflated prices.

The fact that she is against solving our debt problems by tough choice A is not surprising and I would agree that it is a bad idea. Whether QE2 will get out of hand for the Fed and produce above target inflation rates remains to be seen. They say they can do a Volker and kill inflation if need be, and its hard to argue against that. Although one have to question what they will actually do if faced with the tough choices of killing inflation or killing the economy. Its all about tough choices and not a surprise that a dim-wit like SP is against a tough choice, what is missing is which of the other tough choices she and her fellow tea-baggers think should be implemented instead. The reason the Fed is doing this is simply that they have no other way of fulfilling their mandates unless the politicians make the tough choices. So what is Sara and the tea-baggers going to do to solve our problems instead?

The idea that we should do nothing except letting debt and deflation run its course is idiotic. We are trying to run a country not a brothel, so big doubble D’s are not acceptable in the business plan.

Right, except the notion that “doing something” is always superior to doing nothing is a falsehood.

Sometimes “no plan” is better than an incredibly crappy plan that won’t work, because at least with “no plan” you still have the urgency to keep thinking, keep trying to figure out real solutions.

Engaging an incredibly crappy plan, on the other hand, winds up being a waste of time, money, and mental energy. I still haven’t heard even a halfway decent argument as to how more liquidity is going to solve the serious issues the economy faces when liquidity was never the prime constraint in the first place. Providing it just happens to be the one thing the one-trick Fed is good at.

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About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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